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Lehman Judge's Decision Means More Cash For Creditors Soon

By Joseph Checkler Of DOW JONES DAILY BANKRUPTCY REVIEW NEW YORK -(Dow Jones)- A judge on Wednesday said Lehman Brothers Holdings Inc. (LEHMQ) can set aside non-cash assets for disputed claims so it has more cash to pay back other creditors soon, a decision that will give the failed investment bank more money to pay in its initial distribution tentatively set for about the end of the first quarter. Judge James Peck of the U.S. Bankruptcy Court in Manhattan approved the request, which sets the stage for Lehman to distribute more than $10.5 billion to creditors when it makes its first distribution to them. Without the judge's approval, Lehman would have had $8.1 billion for the initial distribution to those creditors. Peck said reserving the non-cash assets does the job of "balancing the needs" of creditors with claims that are allowed and those with claims still in dispute. The approval allows Lehman to stash away the non-cash assets it can later use to pay currently unresolved claims. Lehman said the risk that the money won't be available later is miniscule. Peck's decision means Lehman has more immediate cash available to begin paying back its unsecured creditors whose claims are already known. The judge approved setting aside until a later date one objection from Jamie Murcia, an individual creditor with a claim of about $1.4 million. Peck expressed displeasure that the Murcia objection hasn't been resolved and hinted that he would have overruled it if it were heard Wednesday. Milbank Tweed Hadley & McCoy LLP's Evan R. Fleck, a lawyer for Lehman's official committee of unsecured creditors, said in court Wednesday that "this really does make sense and protects the interest of all parties." Peck on Wednesday also approved Lehman's request to slash by $35 billion claims from big banks related to residential mortgage-backed securities. Those banks, including Citigroup Inc. (C) and Wells Fargo & Co. (WFC), had originally filed claims worth more than $37 billion, but Peck's approval means only $2.4 billion will be put aside to eventually satisfy them. Lehman collapsed into the largest bankruptcy in history in September 2008, and since then, a team of bankruptcy professionals under the direction of Alvarez & Marsal Inc. has managed its assets, including real-estate holdings, corporate debt and derivatives. Late last year, Peck approved Lehman's creditor-payback plan, which should distribute about $65 billion and treats creditors of Lehman subsidiaries better than those of the parent company. Despite confirmation of the plan, the company still has billions of dollars in real estate and other assets and will continue to exist as it unloads and manages those investments. While Lehman's plan has been confirmed by Peck, it still isn't considered "effective," so the distributions can't yet begin. (Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.) -By Joseph Checkler, Dow Jones Newswires; 212-416-2152; joseph.checkler@dowjones.com